Q: Last winter, our agency sold a tour operator's European tour operating this summer. We collected final payment last week, and the day after we overnighted it to the operator we received an email stating, "We regret to inform you that we are raising the price by $150 per person due to airfare increases imposed on us by the airline." Needless to say, our clients are refusing to pay, claiming "a contract is a contract." Does the airline have the legal right to raise the fare after the client has paid in full? If so, does the operator have the legal right to pass along the increase? Do we have to absorb it if the client does not pay?
A: Until 2008, your problem was very rare, as airlines and operators generally refrained from raising prices after reservations were made. With the large fare increases we have seen over the past few months, your problem is becoming common. It is safe to say that most agencies have not been equipped to cope with the increases.
The airline's rights are governed by its conditions of carriage, which are legal documents that are often 50 pages long.
The conditions bind the passenger, even if he or she has never read or even heard of them. They also bind the tour operator, unless the airline and operator have a contract that supersedes the conditions of carriage.
The conditions of carriage of all major airlines state that the fare can increase until the ticket is issued. The ticketing date is the cutoff, no matter who issues the ticket: you, the operator or the airline.
There is no exception for fuel surcharges, so it is good to know that the airline cannot collect more fuel money from you once you hold a ticket or an e-ticket.
Conversely, the airline has the legal right to increase the fare by any amount it wishes before the airline or its agent issues the ticket.
So, contrary to popular belief, holding a reservation, making a deposit and even making final payment are not legal barriers to fare increases.
In the operation of tours (including independent, package and escorted tours), both the operator and your agency act as agents for the airline.
Therefore, both have the same rights that the airline has to require the passenger to pay more before ticketing, if that is what the airline wants.
In your case, it is unfortunate that not only had the clients made final payment but that you had also sent it in.
If the airline knew that a fare increase was in the pipeline, and if it reserved the right to issue all special-fare tickets for the operator, it could well have delayed ticketing until the fare increase took effect.
Of course, knowing everyone's legal rights is not going to make the clients any less upset. To maintain goodwill, I am sure some agencies are just absorbing the increase.
However, for future sales, a better idea is to have your tour clients sign a disclaimer stating that they understand that the tour price can increase at any time before airline tickets are issued and that you have no control over when tickets are issued.
For a sample of such a clause within a disclaimer, go to www.pestronk.com/free.html and click on "Disclaimer for Client's Signature."
Mark Pestronk is a Washington-based lawyer specializing in travel law. To submit a question for Legal Briefs, email Pestronk at [email protected].